0001224608-16-000063.txt : 20160427 0001224608-16-000063.hdr.sgml : 20160427 20160427171302 ACCESSION NUMBER: 0001224608-16-000063 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20160427 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20160427 DATE AS OF CHANGE: 20160427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNO Financial Group, Inc. CENTRAL INDEX KEY: 0001224608 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 753108137 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31792 FILM NUMBER: 161596260 BUSINESS ADDRESS: STREET 1: 11825 N PENNSYLVANIA ST CITY: CARMEL STATE: IN ZIP: 46032 BUSINESS PHONE: 3178176100 MAIL ADDRESS: STREET 1: 11825 NORTH PENNSYLVANIA STREET CITY: CARMEL STATE: IN ZIP: 46032 FORMER COMPANY: FORMER CONFORMED NAME: CONSECO INC DATE OF NAME CHANGE: 20030326 8-K 1 form8-k03312016earnings.htm 8-K 8-K




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): April 27, 2016



CNO Financial Group, Inc.
(Exact Name of Registrant as Specified in Charter)
 
Delaware
001-31792
75-3108137
(State or Other
Jurisdiction of Incorporation)
(Commission File Number)
(I.R.S. Employer
Identification No.)
11825 North Pennsylvania Street
Carmel, Indiana  46032
(Address of Principal Executive Offices) (Zip Code)

(317) 817-6100
(Registrant's telephone number, including area code)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:


o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))








Item 2.02.
Results of Operations and Financial Condition.

On April 27, 2016, CNO Financial Group, Inc. (the "Company") issued: (i) a press release announcing its financial results for the quarter ended March 31, 2016, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference; and (ii) additional information related to the Company's financial and operating results for the quarter ended March 31, 2016, a copy of which is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

The information contained under Item 2.02 in this Current Report on Form 8-K (including Exhibits 99.1 and 99.2) is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that Section. The information contained in this Current Report on Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.

Item 9.01(d).
Financial Statements and Exhibits.

The following materials are furnished as exhibits to this Current Report on Form 8-K:

99.1
Press release dated April 27, 2016 related to financial results for the quarter ended March 31, 2016.
99.2
Quarterly Financial Supplement - 1Q2016.






2





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
CNO Financial Group, Inc.
 
 
Date: April 27, 2016
 
 
By:
/s/ John R. Kline
 
 
 
John R. Kline
 
 
 
Senior Vice President and
Chief Accounting Officer
 
 
 
 


3

 EX-99.1 2 exhibit991-03312016earnings.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1
For Immediate Release
Contact:
(News Media) Barbara Ciesemier +1.312.396.7461
 
(Investors) Adam Auvil +1.317.817.6310

CNO Financial Group Reports First Quarter 2016 Results
Continued growth in the enterprise and strength in key capital measures

Carmel, Ind., April 27, 2016 - CNO Financial Group, Inc. (NYSE: CNO) today announced first quarter of 2016 operating earnings (1) of $49.6 million, or 27 cents per diluted share, compared to $60.1 million, or 30 cents per diluted share, in the first quarter of 2015.
"We are encouraged by the growth in our business," said Ed Bonach, CEO of CNO. "Our earnings were largely in line with seasonal expectations, with cash flow, capital, liquidity and returns to shareholders remaining strong. Our strategic investment in Tennenbaum Capital Partners is expected to increase non-life investment returns and allow us to more fully utilize our valuable tax assets."
First Quarter 2016 Highlights
•
Sales, as defined by total new annualized premium ("NAP") (2): $107.8 million, up 2% from 1Q15
•
Policies in-force of 3.5 million (including third party policies in-force), up 1 percent from 1Q15
•
Collected premiums: $896.3 million, up 11% from 1Q15
•
Net income per diluted share: 25 cents in 1Q16 compared to 26 cents in 1Q15
•
Net operating income (1) per diluted share: 27 cents in 1Q16 compared to 30 cents in 1Q15
•
Investment income from general account assets decreased by $9.1 million primarily due to a reduction in income from alternative investments
•
Unrestricted cash and investments held by our holding company were $375 million at March 31, 2016
•
Consolidated risk-based capital ratio was estimated at 441% at March 31, 2016, reflecting estimated statutory operating earnings of $80 million and insurance company dividends to the holding company of $88.7 million during the first three months of 2016
•
Common stock repurchases of $90.0 million and dividends of $12.7 million in 1Q16




CNO Financial (2)
April 27, 2016


Quarterly Segment Operating Results
 
Three months ended
 
March 31,
 
2016
 
2015
 
(Dollars in millions, except per share data)
EBIT (3):
 
 
 
Bankers Life
$
77.6

 
$
82.2

Washington National
26.3

 
28.5

Colonial Penn
(6.8
)
 
(5.9
)
EBIT from business segments
97.1

 
104.8

Corporate Operations, excluding corporate interest expense
(8.1
)
 
(1.3
)
EBIT
89.0

 
103.5

Corporate interest expense
(11.4
)
 
(10.5
)
Operating earnings before taxes
77.6

 
93.0

Tax expense on operating income
28.0

 
32.9

Net operating income (1)
49.6

 
60.1

Net realized investment losses (net of related amortization and taxes)
(.6
)
 
(1.4
)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
(19.2
)
 
(8.3
)
Fair value changes related to agent deferred compensation plan (net of taxes)
(3.9
)
 
—

Valuation allowance for deferred tax assets
20.0

 
—

Other
(.4
)
 
2.4

Net income
$
45.5

 
$
52.8

 
 
 
 
Per diluted share:
 
 
 
Net operating income
$
.27

 
$
.30

Net realized investment losses (net of related amortization and taxes)
—

 
(.01
)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
(.11
)
 
(.04
)
Fair value changes related to agent deferred compensation plan (net of taxes)
(.02
)
 
—

Valuation allowance for deferred tax assets
.11

 
—

Other
—

 
.01

Net income
$
.25

 
$
.26










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CNO Financial (3)
April 27, 2016


The following table summarizes the financial impact of significant items on our 1Q16 net operating income (dollars in millions, except per share amounts):        
 
Three months ended
 
March 31, 2016*
 
Actual results
 
Significant items
 
Excluding significant items
Net Operating Income (1):
 
 
 
 
 
Bankers Life
$
77.6

 
$
(7.7
)
 
$
69.9

Washington National
26.3

 
—

 
26.3

Colonial Penn
(6.8
)
 
—

 
(6.8
)
EBIT from business segments
97.1

 
(7.7
)
 
89.4

Corporate Operations, excluding corporate interest expense
(8.1
)
 
3.0

 
(5.1
)
EBIT (3)
89.0

 
(4.7
)
 
84.3

Corporate interest expense
(11.4
)
 
—

 
(11.4
)
Operating earnings before taxes
77.6

 
(4.7
)
 
72.9

Tax expense on operating income
28.0

 
(1.7
)
 
26.3

Net operating income
$
49.6

 
$
(3.0
)
 
$
46.6

 
 
 
 
 
 
Net operating income per diluted share
$
.27

 
$
(.01
)
 
$
.26


The significant items in 1Q16 included: (i) the $7.7 million release of long-term care reserves (net of the reduction in insurance intangibles) due to the impact of policyholder actions following rate increases; and (ii) $3 million of accelerated stock compensation expense related to retirement eligible employees.

* See page 9 for the table of Net Operating Income Excluding Significant Items for the three months ended March 31, 2015.

Segment Results
Bankers Life markets and distributes a variety of insurance products to middle-income Americans at or near retirement through a dedicated field force of career agents. NAP in 1Q16 was $60.3 million, down $1.3 million from 1Q15. Sales results for the quarter primarily reflect lower sales of life and Medicare supplement products, partially offset by higher sales of annuities and long-term care products. It should be noted that 80 percent of the long-term care NAP in 1Q16 related to policies with maximum benefit periods of one year. Our recruiting results were relatively flat in 1Q16 compared to 1Q15. Average producing agents were down 6 percent from 1Q15, however, agent productivity (defined as NAP divided by the average producing agents) was up 4 percent.
Collected premiums were up 13 percent in 1Q16 compared to 1Q15, reflecting an increase in premiums from annuity products and strong persistency in the Medicare supplement and life blocks. Annuity account values, on which spread income is earned, increased 2 percent to $7.6 billion in 1Q16 compared to 1Q15, driven by sales and strong persistency. Total policies in-force increased 1 percent in 1Q16, including a 10 percent increase in third party policies in-force.
Pre-tax operating earnings in 1Q16 compared to 1Q15 were down $4.6 million, or 6 percent. Pre-tax operating earnings in 1Q16 reflected $7 million of lower investment income from alternative investments compared to 1Q15.
The long-term care interest-adjusted benefit ratio was 75.3 percent in 1Q16, lower than the 1Q15 ratio of 83.0 percent. The 1Q16 ratio was favorably impacted by $8 million of one-time reserve releases related to policyholder decisions to surrender or reduce coverage following rate increases. The 1Q16 long-term care interest-adjusted benefit ratio excluding the favorable reserve releases related to rate increases was 82.4 percent. We continue to expect the long-term care interest-adjusted benefit ratio to be in the range of 81 percent to 86 percent during 2016,



CNO Financial (4)
April 27, 2016


excluding the reserve-related impacts of rate increase actions. We also expect that the impacts of rate increases will continue to favorably impact the interest-adjusted benefit ratio in 2016.
Pre-tax operating earnings in 1Q16 reflected a Medicare supplement benefit ratio of 71.1 percent, higher than the 1Q15 ratio of 67.4 percent. The benefit ratio for the first quarter of 2015 reflected favorable experience in a small block of other health policies that are aggregated with these policies due to their relative immateriality. We continue to expect the Medicare supplement benefit ratio to be in the range of 70 percent to 73 percent during 2016.
Washington National markets and distributes supplemental health and life insurance to middle-income consumers through a wholly-owned subsidiary and independent insurance agencies. NAP in 1Q16 was $23.4 million, up 4 percent from 1Q15, reflecting strong sales of our supplemental health products. The average number of producing agents was up 9 percent compared to 1Q15, driven by strong recruiting and steady retention.
Collected premiums from the segment's supplemental health block were up 6 percent in 1Q16 compared to 1Q15.
Pre-tax operating earnings in 1Q16 compared to 1Q15 were down $2.2 million, or 8 percent. Pre-tax operating earnings in 1Q16 reflected $3 million of lower investment income from alternative investments compared to 1Q15.
The supplemental health interest-adjusted benefit ratio was 57.7 percent and 57.6 percent in 1Q16 and 1Q15, respectively. We continue to expect the supplemental health interest-adjusted benefit ratio to be in the range of 56 percent to 59 percent during 2016.
Colonial Penn markets primarily graded benefit and simplified issue life insurance directly to customers through television advertising, direct mail, the internet and telemarketing. NAP in 1Q16 was $24.1 million, up 14 percent from 1Q15, benefiting from lead diversification and sales productivity initiatives.
Collected premiums were up 8 percent in 1Q16 compared to 1Q15, driven by increased sales and steady persistency.
The pre-tax operating loss in 1Q16 was $6.8 million compared to a loss of $5.9 million in 1Q15, primarily reflecting higher seasonal marketing costs and investments in new business. In-force EBIT was $12.7 million, up 20 percent from 1Q15, primarily reflecting growth in the block.
Recognizing the accounting standard related to deferred acquisition costs, the amount of our investment in new business during a particular period will have a significant impact on this segment's results. We continue to expect this segment to report earnings in 2016 in the range of breakeven to $6 million. The range of earnings we expect to report in 2016 reflects uncertainty related to how the U.S. presidential election will impact the cost of television advertising.
Corporate Operations includes our investment advisory subsidiary and corporate expenses.
Pre-tax losses in 1Q16 were $8.1 million compared to $1.3 million of losses in 1Q15 primarily reflecting less favorable investment returns and higher expenses in 1Q16 compared to 1Q15, including $3 million of accelerated stock compensation expense related to retirement eligible employees.







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CNO Financial (5)
April 27, 2016


Non-Operating Items
Net realized investment losses in 1Q16 were $.6 million (net of related amortization and taxes) including total other-than-temporary impairment losses of $10.0 million recorded in earnings. Net realized investment losses in 1Q15 were $1.4 million (net of related amortization and taxes) including total other-than-temporary impairment losses of $1.3 million recorded in earnings.
During 1Q16 and 1Q15, we recognized decreases in earnings of $19.2 million and $8.3 million, respectively, resulting from changes in the estimated fair value of embedded derivative liabilities related to our fixed index annuities, net of related amortization and income taxes. Such amount includes the impacts of changes in market interest rates used to determine the derivative's estimated fair value.
During 1Q16, we recognized a decrease in earnings of $3.9 million, net of taxes, for the mark-to-market change in the agent deferred compensation plan liability which was impacted by changes in interest rates used to value the liability. We recognize the mark-to-market change in the estimated value of this liability through earnings as assumptions change.
In 1Q16, we reduced the valuation allowance for deferred tax assets by $20 million primarily related to higher expected non-life income from: (i) our recently announced investment in Tennenbaum Capital Partners ("TCP"); and (ii) $250 million of additional investments in various TCP managed funds and strategies we agreed to make over time.
Statutory (based on non-GAAP measures) and GAAP Capital Information
Our consolidated statutory risk-based capital ratio was estimated at 441% at March 31, 2016, reflecting estimated 1Q16 consolidated statutory operating earnings of $80 million and the payment of insurance company dividends to the holding company of $88.7 million during the first three months of 2016.
During the first quarter of 2016, we repurchased $90.0 million of common stock under our securities repurchase program. We repurchased 5.3 million common shares at an average cost of $16.88 per share. CNO anticipates repurchasing common stock in the range of $275 million to $375 million in 2016, absent compelling alternatives. As of March 31, 2016, we had 179.1 million shares outstanding and had authority to repurchase up to an additional $365.7 million of our common stock. During 1Q16, dividends paid on common stock totaled $12.7 million.
Book value per diluted share, excluding accumulated other comprehensive income (loss) (4), increased to $20.38 at March 31, 2016, compared to $20.05 at December 31, 2015.
Our debt-to-total capital ratio, excluding accumulated other comprehensive income (5) at March 31, 2016, was 19.8 percent, an increase of 20 basis points from December 31, 2015. Unrestricted cash and investments held by our holding company were $375 million at March 31, 2016, compared to $382 million at December 31, 2015, reflecting dividends from subsidiaries, common stock repurchases and dividend payments.
Conference Call
The Company will host a conference call to discuss results on April 28, 2016 at 11:00 a.m. Eastern Time. The webcast can be accessed through the Investors section of the company's website: http://ir.CNOinc.com. Participants should go to the website at least 15 minutes before the event to register and download any necessary audio software. During the call, we will be referring to a presentation that will be available the morning of the call at the Investors section of the company's website.
About CNO Financial Group
CNO Financial Group, Inc. (NYSE: CNO) is a holding company.  Our insurance subsidiaries - principally Bankers Life and Casualty Company, Colonial Penn Life Insurance Company and Washington National Insurance Company - primarily serve middle-income pre-retiree and retired Americans by helping them protect against financial adversity and provide for a more secure retirement.  For more information, visit CNO online at www.CNOinc.com.



CNO Financial (6)
April 27, 2016



CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
(unaudited)
 
March 31,
2016
 
December 31, 2015
ASSETS
 
 
 
Investments:
 
 
 
Fixed maturities, available for sale, at fair value (amortized cost:  March 31, 2016 - $18,765.4; December 31, 2015 - $18,947.0)
$
20,105.1

 
$
19,882.9

Equity securities at fair value (cost: March 31, 2016 - $586.0; December 31, 2015 - $447.4)
610.7

 
463.0

Mortgage loans
1,700.8

 
1,721.0

Policy loans
110.1

 
109.4

Trading securities
285.2

 
262.1

Investments held by variable interest entities
1,691.0

 
1,633.6

Other invested assets
433.4

 
415.1

Total investments
24,936.3

 
24,487.1

Cash and cash equivalents - unrestricted
635.7

 
432.3

Cash and cash equivalents held by variable interest entities
190.1

 
364.4

Accrued investment income
247.7

 
237.0

Present value of future profits
432.2

 
449.0

Deferred acquisition costs
954.8

 
1,083.3

Reinsurance receivables
2,839.4

 
2,859.3

Income tax assets, net
828.8

 
898.8

Assets held in separate accounts
4.6

 
4.7

Other assets
388.4

 
309.2

Total assets
$
31,458.0

 
$
31,125.1

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities:
 

 
 

Liabilities for insurance products:
 

 
 

Policyholder account balances
$
10,772.4

 
$
10,762.3

Future policy benefits
10,768.7

 
10,602.1

Liability for policy and contract claims
488.7

 
487.8

Unearned and advanced premiums
292.0

 
286.3

Liabilities related to separate accounts
4.6

 
4.7

Other liabilities
788.9

 
707.8

Investment borrowings
1,548.0

 
1,548.1

Borrowings related to variable interest entities
1,656.6

 
1,676.4

Notes payable – direct corporate obligations
911.5

 
911.1

Total liabilities
27,231.4

 
26,986.6

Commitments and Contingencies
 
 
 
Shareholders' equity:
 

 
 

Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding:  March 31, 2016 – 179,098,447; December 31, 2015 – 184,028,511)
1.8

 
1.8

Additional paid-in capital
3,304.3

 
3,386.8

Accumulated other comprehensive income
540.5

 
402.8

Retained earnings
380.0

 
347.1

Total shareholders' equity
4,226.6

 
4,138.5

Total liabilities and shareholders' equity
$
31,458.0

 
$
31,125.1



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CNO Financial (7)
April 27, 2016



CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
 
Three months ended
 
March 31,
 
2016
 
2015
Revenues:
 
 
 
Insurance policy income
$
644.4

 
$
636.5

Net investment income:
 
 
 
General account assets
291.0

 
300.1

Policyholder and other special-purpose portfolios
11.7

 
16.6

Realized investment gains (losses):
 
 
 
Net realized investment gains (losses), excluding impairment losses
9.1

 
(1.1
)
Impairment losses recognized (a)
(10.0
)
 
(1.3
)
Gain on dissolution of a variable interest entity
—

 
11.3

Total realized gains (losses)
(.9
)
 
8.9

Fee revenue and other income
14.2

 
16.2

Total revenues
960.4

 
978.3

Benefits and expenses:
 
 
 
Insurance policy benefits
619.0

 
606.0

Transition expenses
—

 
4.5

Interest expense
27.7

 
21.5

Amortization
62.1

 
66.1

Other operating costs and expenses
211.1

 
197.9

Total benefits and expenses
919.9

 
896.0

Income before income taxes
40.5

 
82.3

Income tax expense:
 
 
 
Tax expense on period income
15.0

 
29.5

Valuation allowance for deferred tax assets
(20.0
)
 
—

Net income
$
45.5

 
$
52.8

Earnings per common share:
 
 
 
Basic:
 
 
 
Weighted average shares outstanding
180,350,000

 
200,491,000

Net income
$
.25

 
$
.26

Diluted:
 
 
 
Weighted average shares outstanding
182,128,000

 
202,275,000

Net income
$
.25

 
$
.26


______________
(a)
No portion of the other-than-temporary impairments recognized in the periods was included in accumulated other comprehensive income.

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CNO Financial (8)
April 27, 2016



CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
EBIT FROM BUSINESS SEGMENTS
SUMMARIZED BY IN-FORCE AND NEW BUSINESS (6)
(Dollars in millions)

 
Three months ended
 
March 31,
 
2016
 
2015
EBIT (3) from In-force and New Business
 
 
 
Bankers Life:
 
 
 
In-Force Business
$
118.4

 
$
122.3

New Business
(40.8
)
 
(40.1
)
Total
$
77.6

 
$
82.2

 
 
 
 
Washington National (7):
 
 
 
In-Force Business
$
31.3

 
$
34.9

New Business
(5.0
)
 
(6.4
)
Total
$
26.3

 
$
28.5

 
 
 
 
Colonial Penn:
 
 
 
In-Force Business
$
12.7

 
$
10.6

New Business
(19.5
)
 
(16.5
)
Total
$
(6.8
)
 
$
(5.9
)
 
 
 
 
Total Business segments:
 
 
 
In-Force Business
$
162.4

 
$
167.8

New Business
(65.3
)
 
(63.0
)
Total EBIT from business segments
$
97.1

 
$
104.8
























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CNO Financial (9)
April 27, 2016


CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NET OPERATING INCOME EXCLUDING A SIGNIFICANT ITEM*
(Dollars in millions, except per share data)

 
Three months ended
 
March 31, 2015*
 
Actual results
 
Significant item
 
Excluding significant item
Net Operating Income (1):
 
 
 
 
 
Bankers Life
$
82.2

 
$
—

 
$
82.2

Washington National
28.5

 
—

 
28.5

Colonial Penn
(5.9
)
 
—

 
(5.9
)
EBIT from business segments
104.8

 
—

 
104.8

Corporate Operations, excluding corporate interest expense
(1.3
)
 
—

 
(1.3
)
EBIT (3)
103.5

 
—

 
103.5

Corporate interest expense
(10.5
)
 
—

 
(10.5
)
Operating earnings before taxes
93.0

 
—

 
93.0

Tax expense on operating income
32.9

 
—

 
32.9

Net operating income
$
60.1

 
$
—

 
$
60.1

 
 
 
 
 
 
Net operating income per diluted share
$
.30

 
$
—

 
$
.30


* We had previously included one significant item in our 1Q15 net operating income analysis which represented the $1.9 million after tax impact of unfavorable supplemental health reserve developments in the Washington National segment related to claims incurred in prior periods. After a comprehensive review of claims conducted in 2Q15, it was ultimately determined that the claims liability at March 31, 2015 for supplemental health claims incurred in 1Q15 was deficient by a similar amount. Accordingly, we are no longer reporting this as a significant item.
























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CNO Financial (10)
April 27, 2016




CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
COLLECTED PREMIUMS
(Dollars in millions)
 
Three months ended
 
March 31,
 
2016
 
2015
Bankers Life:
 
 
 
Medicare supplement
$
186.9

 
$
180.3

Long-term care
119.6

 
118.1

Other health
1.6

 
1.8

Supplemental health
5.0

 
4.4

Life
114.0

 
107.9

Annuity
233.6

 
171.7

Total
660.7

 
584.2

Washington National:
 
 
 
Supplemental health and other health
141.6

 
133.2

Medicare supplement
16.4

 
18.2

Life
7.2

 
6.9

Annuity
.3

 
.4

Total
165.5

 
158.7

Colonial Penn:
 
 
 
Life
69.5

 
64.4

Medicare supplement and other health
.6

 
.7

Total
70.1

 
65.1

Total collected premiums from segments
$
896.3

 
$
808.0




NEW ANNUALIZED PREMIUMS (2)
(Dollars in millions)
 
Three months ended
 
March 31,
 
2016
 
2015
Bankers Life:
 
 
 
Medicare supplement
$
16.4

 
$
17.7

Long-term care
6.1

 
5.3

Supplemental health
1.5

 
2.0

Life
22.4

 
26.4

Annuity
13.9

 
10.2

Total
60.3

 
61.6

Washington National:
 
 
 
Supplemental health
22.0

 
21.4

Life
1.4

 
1.2

Total
23.4

 
22.6

Colonial Penn:
 
 
 
Life
24.1

 
21.1

Total
24.1

 
21.1

Total new annualized premiums
$
107.8

 
$
105.3



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CNO Financial (11)
April 27, 2016



CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
BENEFIT RATIOS ON MAJOR HEALTH LINES OF BUSINESS

 
Three months ended
 
March 31,
 
2016
 
2015
Bankers Life:
 
 
 
Medicare Supplement:
 
 
 
Earned premium
$193 million

 
$193 million

Benefit ratio (8)
71.1
%
 
67.4
%
Long-Term Care:
 
 
 
Earned premium
$118 million

 
$123 million

Benefit ratio (8)
132.9
%
 
137.8
%
Interest-adjusted benefit ratio (a non-GAAP measure) (9)
75.3
%
 
83.0
%
Washington National:
 
 
 
Medicare Supplement:
 
 
 
Earned premium
$16 million

 
$19 million

Benefit ratio (8)
65.1
%
 
63.2
%
Supplemental health:
 
 
 
Earned premium
$139 million

 
$133 million

Benefit ratio (8)
81.2
%
 
82.4
%
Interest-adjusted benefit ratio (a non-GAAP measure) (9)
57.7
%
 
57.6
%


















-more-




CNO Financial (12)
April 27, 2016


NOTES
(1)
Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses, net of related amortization and taxes; (ii) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and taxes; (iii) fair value changes related to the agent deferred compensation plan, net of taxes, (iv) loss on extinguishment of debt, net of taxes; (v) changes in the valuation allowance for deferred tax assets; and (vi) other non-operating items consisting primarily of equity in earnings of certain non-strategic investments and earnings attributable to variable interest entities, net of taxes ("Net operating income," a non-GAAP financial measure) is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry. Management uses this measure to evaluate performance because the items excluded from net operating income can be affected by events that are unrelated to the company's underlying fundamentals. Net realized investment gains or losses include: (i) gains or losses on the sales of investments; (ii) other-than-temporary impairments recognized through net income; and (iii) changes in fair value of certain fixed maturity investments with embedded derivatives. A reconciliation of Net operating income to Net income applicable to common stock is provided in the table on page 2. Additional information concerning this non-GAAP measure is included in our periodic filings with the Securities and Exchange Commission that are available in the "Investors - SEC Filings" section of CNO's website, www.CNOinc.com.
(2)
Measured by new annualized premium, which includes 6% of annuity and 10% of single premium whole life deposits and 100% of all other premiums. Medicare Advantage sales are not comparable to other sales and are therefore excluded in all periods.
(3)
Management believes that an analysis of earnings before net realized investment gains (losses), fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, fair value changes related to the agent deferred compensation plan, loss on extinguishment of debt, other non-operating items, corporate interest expense and taxes ("EBIT," a non-GAAP financial measure) provides a clearer comparison of the operating results of the company quarter-over-quarter because these items are unrelated to the company's underlying fundamentals. A reconciliation of EBIT to Net Income applicable to common stock is provided in the table on page 2.
(4)
Book value per diluted share reflects the potential dilution that could occur if outstanding stock options were exercised, restricted stock and performance units were vested and convertible securities were converted. The dilution from options, restricted shares and performance units is calculated using the treasury stock method. Under this method, we assume the proceeds from the exercise of the options (or the unrecognized compensation expense with respect to restricted stock and performance units) will be used to purchase shares of our common stock at the closing market price on the last day of the period. The dilution from convertible securities is calculated assuming the securities were converted on the last day of the period. In addition, the calculation of this non-GAAP measure differs from the corresponding GAAP measure because accumulated other comprehensive income (loss) has been excluded from the value of capital used to determine this measure. Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in the unrealized appreciation (depreciation) of our investments. The corresponding GAAP measures for book value per common share were $23.60 and $22.49 at March 31, 2016 and December 31, 2015, respectively.
(5)
The calculation of this non-GAAP measure differs from the corresponding GAAP measure because accumulated other comprehensive income (loss) has been excluded from the value of capital used to determine this measure. Management believes this non-GAAP measure is useful because it removes the volatility that arises from changes in the unrealized appreciation (depreciation) of our investments. The corresponding GAAP measures for debt-to-total capital were 17.7% and 18.0% at March 31, 2016 and December 31, 2015, respectively.
(6)
Management believes that an analysis of EBIT, separated between in-force and new business provides increased clarity around the value drivers of our business, particularly since the new business results are significantly impacted by the rate of sales, mix of business and the distribution channel through which new sales are made. EBIT from new business includes pre-tax revenues and expenses associated with new sales of our insurance products during the first year after the sale is completed. EBIT from in-force business includes all pre-tax revenues and expenses associated with sales of insurance products that were completed more than one year before the end of the reporting period. The allocation of certain revenues and expenses between new and in-force business is based on estimates, which we believe are reasonable.
(7)
Adjustments between insurance policy benefits allocated to new and in-force business in the Washington National segment were made to 2015 reported amounts to conform to our current method. This change had no impact on total insurance policy benefits.
(8)
The benefit ratio is calculated by dividing the related product's insurance policy benefits by insurance policy income.
(9)
The interest-adjusted benefit ratio (a non-GAAP measure) is calculated by dividing the product's insurance policy benefits less imputed interest income on the accumulated assets backing the insurance liabilities by insurance policy income. Interest
income is an important factor in measuring the performance of longer duration health products. The net cash flows generally cause an accumulation of amounts in the early years of a policy (accounted for as reserve increases), which will be paid out as benefits in later policy years (accounted for as reserve decreases). Accordingly, as the policies age, the benefit ratio will typically increase, but the increase in the change in reserve will be partially offset by the imputed interest income earned on the accumulated assets. The interest-adjusted benefit ratio reflects the effects of such interest income offset (which is equal to the tabular interest on the related insurance liabilities). Since interest income is an important factor in measuring the performance of these products, management believes a benefit ratio, which includes the effect of interest income, is useful in analyzing product performance. Additional information concerning this non-GAAP measure is included in our periodic filings with the Securities and Exchange Commission that are available in the "Investors - SEC Filings" section of CNO Financial's website, www.CNOinc.com.



CNO Financial (13)
April 27, 2016


Cautionary Statement Regarding Forward-Looking Statements. Our statements, trend analyses and other information contained in this press release relative to markets for CNO Financial's products and trends in CNO Financial's operations or financial results, as well as other statements, contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically are identified by the use of terms such as "anticipate," "believe," "plan," "estimate," "expect," "project," "intend," "may," "will," "would," "contemplate," "possible," "attempt," "seek," "should," "could," "goal," "target," "on track," "comfortable with," "optimistic," "guidance," "outlook" and similar words, although some forward-looking statements are expressed differently. You should consider statements that contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business conditions, our results of operations, financial position, and our business outlook or they state other ''forward-looking'' information based on currently available information. Assumptions and other important factors that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, among other things: (i) changes in or sustained low interest rates causing reductions in investment income, the margins of our fixed annuity and life insurance businesses, and sales of, and demand for, our products; (ii) expectations of lower future investment earnings may cause us to accelerate amortization, write down the balance of insurance acquisition costs or establish additional liabilities for insurance products; (iii) general economic, market and political conditions, including the performance and fluctuations of the financial markets which may affect the value of our investments as well as our ability to raise capital or refinance existing indebtedness and the cost of doing so; (iv) the ultimate outcome of lawsuits filed against us and other legal and regulatory proceedings to which we are subject; (v) our ability to make anticipated changes to certain non-guaranteed elements of our life insurance products; (vi) our ability to obtain adequate and timely rate increases on our health products, including our long-term care business; (vii) the receipt of any required regulatory approvals for dividend and surplus debenture interest payments from our insurance subsidiaries; (viii) mortality, morbidity, the increased cost and usage of health care services, persistency, the adequacy of our previous reserve estimates and other factors which may affect the profitability of our insurance products; (ix) changes in our assumptions related to deferred acquisition costs or the present value of future profits; (x) the recoverability of our deferred tax assets and the effect of potential ownership changes and tax rate changes on their value; (xi) our assumption that the positions we take on our tax return filings will not be successfully challenged by the Internal Revenue Service; (xii) changes in accounting principles and the interpretation thereof; (xiii) our ability to continue to satisfy the financial ratio and balance requirements and other covenants of our debt agreements; (xiv) our ability to achieve anticipated expense reductions and levels of operational efficiencies including improvements in claims adjudication and continued automation and rationalization of operating systems, (xv) performance and valuation of our investments, including the impact of realized losses (including other-than-temporary impairment charges); (xvi) our ability to identify products and markets in which we can compete effectively against competitors with greater market share, higher ratings, greater financial resources and stronger brand recognition; (xvii) our ability to generate sufficient liquidity to meet our debt service obligations and other cash needs; (xviii) our ability to maintain effective controls over financial reporting; (xix) our ability to continue to recruit and retain productive agents and distribution partners; (xx) customer response to new products, distribution channels and marketing initiatives; (xxi) our ability to achieve additional upgrades of the financial strength ratings of CNO Financial and our insurance company subsidiaries as well as the impact of our ratings on our business, our ability to access capital and the cost of capital; (xxii) regulatory changes or actions, including those relating to regulation of the financial affairs of our insurance companies, such as the payment of dividends and surplus debenture interest to us, regulation of the sale, underwriting and pricing of products, and health care regulation affecting health insurance products; (xxiii) changes in the Federal income tax laws and regulations which may affect or eliminate the relative tax advantages of some of our products or affect the value of our deferred tax assets; (xxiv) availability and effectiveness of reinsurance arrangements, as well as any defaults or failure of reinsurers to perform; (xxv) the performance of third party service providers and potential difficulties arising from outsourcing arrangements; (xxvi) the growth rate of sales, collected premiums, annuity deposits and assets; (xxvii) interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems; (xxviii) events of terrorism, cyber attacks, natural disasters or other catastrophic events, including losses from a disease pandemic; (xxix) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; and (xxx) the risk factors or uncertainties listed from time to time in our filings with the Securities and Exchange Commission. Other factors and assumptions not identified above are also relevant to the forward-looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement. Our forward-looking statements speak only as of the date made. We assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward looking statements.

Contact:
(News Media) Barbara Ciesemier +1.312.396.7461
 
(Investors) Adam Auvil +1.317.817.6310

- # # # # -



 EX-99.2 3 exhibit992-03312016investo.htm EXHIBIT 99.2 Exhibit


Exhibit 99.2



 
 
 
 
 
 
 
 
 
 
 
 
Quarterly Financial Supplement - 1Q2016
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
April 27, 2016
 
 
 
 
 
 
 
 
 
 
 




Page 1



Table of Contents
 
 
 
Page
 
 
 
 
 
Consolidated balance sheet
 
 
 
3
Consolidated statement of operations
 
 
 
4
Operating results
 
 
 
5
Computation of weighted average shares outstanding
 
 
 
6
EBIT from Business Segments Summarized by In-Force and New Business
 
 
 
7
Analyses of income before taxes and selected data:
 
 
 
 
     Bankers Life
 
 
 
8-11
     Washington National
 
 
 
12-14
     Colonial Penn
 
 
 
15-16
     Corporate Operations
 
 
 
17
Premiums collected on insurance products:
 
 
 
 
     Bankers Life
 
 
 
18
     Washington National
 
 
 
19
     Colonial Penn
 
 
 
20
New Annualized Premiums and Total Policies In-force
 
 
 
21
Statutory information
 
 
 
22
Notes
 
 
 
23





Page 2



CNO Financial Group, Inc.
 
 
 
 
 
Consolidated balance sheet (in millions)
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
 
 
 
 
 
 
Assets
 
 
 
 
 
Investments:
 
 
 
 
 
  Fixed maturities, available for sale, at fair value
$
21,058.4

$
20,224.8

$
20,144.5

$
19,882.9

$
20,105.1

  Equity securities at fair value
427.8

433.3

437.3

463.0

610.7

  Mortgage loans
1,699.7

1,665.5

1,712.6

1,721.0

1,700.8

  Policy loans
107.1

108.1

109.5

109.4

110.1

  Trading securities
252.3

257.5

257.5

262.1

285.2

  Investments held by variable interest entities
1,499.8

1,565.6

1,488.1

1,633.6

1,691.0

  Other invested assets
453.4

435.4

395.6

415.1

433.4

  Total investments
25,498.5

24,690.2

24,545.1

24,487.1

24,936.3

Cash and cash equivalents - unrestricted
426.9

453.9

613.8

432.3

635.7

Cash and cash equivalents held by variable interest entities
158.5

150.6

106.9

364.4

190.1

Accrued investment income
257.2

240.4

260.7

237.0

247.7

Present value of future profits
472.4

465.1

454.4

449.0

432.2

Deferred acquisition costs
767.2

877.4

909.1

1,083.3

954.8

Reinsurance receivables
2,958.0

2,925.0

2,903.3

2,859.3

2,839.4

Income tax assets, net
669.5

827.8

862.3

898.8

828.8

Assets held in separate accounts
5.5

5.4

5.0

4.7

4.6

Other assets
351.6

382.3

320.6

309.2

388.4

Total assets
$
31,565.3

$
31,018.1

$
30,981.2

$
31,125.1

$
31,458.0

Liabilities
 
 
 
 
 
Liabilities for insurance products:
 
 
 
 
 
  Policyholder account balances
$
10,697.8

$
10,689.3

$
10,728.0

$
10,762.3

$
10,772.4

  Future policy benefits
10,962.8

10,588.9

10,691.6

10,602.1

10,768.7

  Liability for policy and contract claims
474.1

484.5

484.1

487.8

488.7

  Unearned and advanced premiums
278.9

268.6

281.4

286.3

292.0

  Liabilities related to separate accounts
5.5

5.4

5.0

4.7

4.6

Other liabilities
667.1

742.5

739.1

707.8

788.9

Investment borrowings
1,518.9

1,518.9

1,543.7

1,548.1

1,548.0

Borrowings related to variable interest entities
1,444.8

1,446.6

1,427.5

1,676.4

1,656.6

Notes payable - direct corporate obligations
761.8

909.2

909.8

911.1

911.5

Total liabilities
26,811.7

26,653.9

26,810.2

26,986.6

27,231.4

Shareholders' equity
 
 
 
 
 
Common stock
2.0

1.9

1.9

1.8

1.8

Additional paid-in capital
3,648.1

3,554.9

3,435.8

3,386.8

3,304.3

Retained earnings
169.3

202.4

222.9

347.1

380.0

Total shareholders' equity before accumulated other comprehensive income
3,819.4

3,759.2

3,660.6

3,735.7

3,686.1

Accumulated other comprehensive income
934.2

605.0

510.4

402.8

540.5

Total shareholders' equity
4,753.6

4,364.2

4,171.0

4,138.5

4,226.6

Total liabilities and shareholders' equity
$
31,565.3

$
31,018.1

$
30,981.2

$
31,125.1

$
31,458.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1Q15
2Q15
3Q15
4Q15
1Q16
 
 
 
 
 
 
Book value per share at period-end (1) (2)
$
19.23

$
19.43

$
19.60

$
20.30

$
20.58

 
 
 
 
 
 
Book value per diluted share (1) (3)
$
19.05

$
19.21

$
19.38

$
20.05

$
20.38

 
 
 
 
 
 





Page 3



CNO Financial Group, Inc.
 
 
 
 
 
 
Consolidated statement of operations (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
636.5

$
640.1

$
640.6

$
638.8

$
2,556.0

$
644.4

Net investment income (loss):
 
 
 
 
 
 
   General account assets
300.1

302.1

298.2

303.2

1,203.6

291.0

Policyholder and other special-purpose portfolios
16.6

11.8

(27.6
)
29.2

30.0

11.7

Realized investment gains (losses):
 
 
 
 
 
 
Net realized investment gains (losses), excluding impairment losses
(1.1
)
(2.2
)
(7.2
)
2.5

(8.0
)
9.1

Other-than-temporary impairments:
 
 
 
 
 
 
Total other-than-temporary impairment losses
(1.3
)
(7.9
)
(15.4
)
(18.3
)
(42.9
)
(10.0
)
Portion of other-than-temporary impairment losses recognized in accumulated other comprehensive income
—

—

3.0

—

3.0

—

Net impairment losses recognized
(1.3
)
(7.9
)
(12.4
)
(18.3
)
(39.9
)
(10.0
)
Gain on dissolution of a variable interest entity
11.3

—

—

—

11.3

—

Total realized gains (losses)
8.9

(10.1
)
(19.6
)
(15.8
)
(36.6
)
(0.9
)
Fee revenue and other income
16.2

15.6

12.9

14.2

58.9

14.2

Total revenues
978.3

959.5

904.5

969.6

3,811.9

960.4

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits
606.0

568.3

582.1

551.9

2,308.3

619.0

Transition expenses
4.5

4.5

—

—

9.0

—

Interest expense
21.5

25.3

23.9

24.2

94.9

27.7

Amortization
66.1

73.7

55.8

64.4

260.0

62.1

Loss on extinguishment of debt
—

32.8

—

—

32.8

—

Other operating costs and expenses
197.9

182.2

190.3

168.8

739.2

211.1

Total benefits and expenses
896.0

886.8

852.1

809.3

3,444.2

919.9

 
 
 
 
 
 
 
Income before income taxes
82.3

72.7

52.4

160.3

367.7

40.5

Income tax expense on period income
29.5

25.9

18.6

55.5

129.5

15.0

Valuation allowance for deferred tax assets
—

—

—

(32.5
)
(32.5
)
(20.0
)
Net income
$
52.8

$
46.8

$
33.8

$
137.3

$
270.7

$
45.5

 
 
 
 
 
 
 







Page 4



CNO Financial Group, Inc.
 
 
 
 
 
 
Operating results ($ in millions, except per share amounts)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
EBIT (4):
 
 
 
 
 
 
   Bankers Life
$
82.2

$
86.4

$
79.8

$
121.2

$
369.6

$
77.6

   Washington National
28.5

20.1

30.6

32.3

111.5

26.3

   Colonial Penn
(5.9
)
4.2

0.6

6.7

5.6

(6.8
)
EBIT from business segments
104.8

110.7

111.0

160.2

486.7

97.1

Corporate operations, excluding corporate interest expense
(1.3
)
(5.0
)
(11.9
)
(0.7
)
(18.9
)
(8.1
)
EBIT
103.5

105.7

99.1

159.5

467.8

89.0

Corporate interest expense
(10.5
)
(11.9
)
(11.3
)
(11.3
)
(45.0
)
(11.4
)
Operating earnings before taxes
93.0

93.8

87.8

148.2

422.8

77.6

Tax expense on operating income
32.9

33.0

31.0

51.2

148.1

28.0

Net operating income (5)
60.1

60.8

56.8

97.0

274.7

49.6

Net realized investment gains (losses) (net of related amortization and taxes)
(1.4
)
(6.8
)
(12.3
)
(10.3
)
(30.8
)
(0.6
)
Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
(8.3
)
16.8

(10.2
)
9.4

7.7

(19.2
)
Fair value changes related to agent deferred compensation plan (net of taxes)
—

—

—

9.8

9.8

(3.9
)
Loss on extinguishment of debt (net of taxes)
—

(21.3
)
—

—

(21.3
)
—

Valuation allowance for deferred tax assets
—

—

—

32.5

32.5

20.0

Other
2.4

(2.7
)
(0.5
)
(1.1
)
(1.9
)
(0.4
)
Net income
$
52.8

$
46.8

$
33.8

$
137.3

$
270.7

$
45.5

 
 
 
 
 
 
 
Per diluted share:
 
 
 
 
 
 
Net operating income
$
.30

$
.31

$
.30

$
.52

$
1.41

$
.27

Net realized investment gains (losses) (net of related amortization and taxes)
(.01
)
(.03
)
(.07
)
(.05
)
(.16
)
—

Fair value changes in embedded derivative liabilities (net of related amortization and taxes)
(.04
)
.08

(.05
)
.05

.04

(.11
)
Fair value changes related to agent deferred compensation plan (net of taxes)
—

—

—

.05

.05

(.02
)
Loss on extinguishment of debt (net of taxes)
—

(.11
)
—

—

(.11
)
—

Valuation allowance for deferred tax assets
—

—

—

.17

.17

.11

Other
.01

(.01
)
—

(.01
)
(.01
)
—

Net income
$
.26

$
.24

$
.18

$
.73

$
1.39

$
.25

 
 
 
 
 
 
 
 
 
 
 
 
 
 




Page 5




CNO Financial Group, Inc.
 
 
 
 
 
 
Computation of weighted average shares outstanding
1Q15
2Q15
3Q15
4Q15
2015
1Q16
(000s)
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
Shares outstanding, beginning of period
203,324.5

198,631.9

193,467.7

186,741.8

203,324.5

184,028.5

Weighted average shares issued during the period:
 
 
 
 
 
 
Shares repurchased
(3,011.2
)
(2,938.7
)
(3,306.4
)
(1,190.1
)
(11,087.0
)
(3,839.6
)
Stock options exercised and vested restricted and performance stock
251.2

164.4

100.9

56.8

1,009.9

233.9

Shares withheld for the payment of taxes on the vesting of restricted stock
(73.8
)
(0.4
)
(2.7
)
(0.2
)
(193.5
)
(72.5
)
Weighted average basic shares outstanding during the period
200,490.7

195,857.2

190,259.5

185,608.3

193,053.9

180,350.3

Basic shares outstanding, end of period
198,631.9

193,467.7

186,741.8

184,028.5

184,028.5

179,098.4

Diluted
 
 
 
 
 
 
Weighted average basic shares outstanding
200,490.7

195,857.2

190,259.5

185,608.3

193,053.9

180,350.3

Common stock equivalent shares related to:
 
 
 
 
 
 
Stock options, restricted stock and performance units
1,783.9

2,215.8

2,105.8

2,342.4

2,112.0

1,777.8

Weighted average diluted shares outstanding during the period
202,274.6

198,073.0

192,365.3

187,950.7

195,165.9

182,128.1

Diluted shares outstanding, end of period
200,489.1

195,711.3

188,918.7

186,340.4

186,340.4

180,902.3

 
 
 
 
 
 
 







Page 6



EBIT from Business Segments Summarized by In-Force and New Business (6)
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
CNO Financial Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force Business
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
549.8

$
549.7

$
553.1

$
553.7

$
2,206.3

$
559.2

Net investment income
295.6

293.9

260.3

309.4

1,159.2

281.7

Fee revenue and other income
5.8

5.8

6.2

7.0

24.8

6.1

Total revenues
851.2

849.4

819.6

870.1

3,390.3

847.0

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits (7)
531.3

544.7

505.9

516.9

2,098.8

526.5

Interest expense
2.5

2.6

2.7

3.1

10.9

3.8

Amortization
65.0

57.8

55.1

52.9

230.8

64.2

Other operating costs and expenses
84.6

84.8

91.7

88.4

349.5

90.1

Total benefits and expenses
683.4

689.9

655.4

661.3

2,690.0

684.6

EBIT from In-Force Business
$
167.8

$
159.5

$
164.2

$
208.8

$
700.3

$
162.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
86.7

$
90.4

$
87.5

$
85.1

$
349.7

$
85.2

Net investment income
7.2

5.2

4.9

4.8

22.1

4.1

Fee revenue and other income
1.2

1.2

1.3

1.5

5.2

1.2

Total revenues
95.1

96.8

93.7

91.4

377.0

90.5

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits (7)
57.8

57.6

55.7

54.1

225.2

54.5

Interest expense
—

—

—

—

—

—

Amortization
5.5

7.3

6.1

7.0

25.9

6.3

Other operating costs and expenses
94.8

80.7

85.1

78.9

339.5

95.0

Total benefits and expenses
158.1

145.6

146.9

140.0

590.6

155.8

EBIT from New Business
$
(63.0
)
$
(48.8
)
$
(53.2
)
$
(48.6
)
$
(213.6
)
$
(65.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
636.5

$
640.1

$
640.6

$
638.8

$
2,556.0

$
644.4

Net investment income
302.8

299.1

265.2

314.2

1,181.3

285.8

Fee revenue and other income
7.0

7.0

7.5

8.5

30.0

7.3

Total revenues
946.3

946.2

913.3

961.5

3,767.3

937.5

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits
589.1

602.3

561.6

571.0

2,324.0

581.0

Interest expense
2.5

2.6

2.7

3.1

10.9

3.8

Amortization
70.5

65.1

61.2

59.9

256.7

70.5

Other operating costs and expenses
179.4

165.5

176.8

167.3

689.0

185.1

Total benefits and expenses
841.5

835.5

802.3

801.3

3,280.6

840.4

EBIT from In-Force and New Business
$
104.8

$
110.7

$
111.0

$
160.2

$
486.7

$
97.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 7





CNO Financial Group, Inc.
 
 
 
 
 
 
Bankers Life
 
 
 
 
 
 
Analysis of income before taxes (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Insurance policy income
$
412.7

$
413.9

$
412.5

$
409.6

$
1,648.7

$
413.2

Net investment income (loss):
 
 
 
 
 
 
   General account invested assets
229.2

230.9

227.4

231.2

918.7

222.0

   Fixed index products
(2.7
)
(5.7
)
(31.1
)
5.5

(34.0
)
(7.8
)
Fee revenue and other income
6.3

6.5

7.0

7.9

27.7

6.6

   Total revenues
645.5

645.6

615.8

654.2

2,561.1

634.0

 
 
 
 
 
 
 
Insurance policy benefits
363.4

371.7

370.4

337.0

1,442.5

360.2

Amounts added to policyholder account balances:
 
 
 
 
 
 
Cost of interest credited to policyholders
30.3

30.0

29.3

28.9

118.5

28.1

Cost of options to fund index credits, net of forfeitures
14.3

14.0

16.9

15.1

60.3

16.9

Market value changes credited to policyholders
(2.7
)
(5.0
)
(30.5
)
5.3

(32.9
)
(8.2
)
Amortization related to operations
51.6

47.7

44.1

43.7

187.1

51.5

Interest expense on investment borrowings
2.1

2.1

2.2

2.4

8.8

2.9

Other operating costs and expenses
104.3

98.7

103.6

100.6

407.2

105.0

   Total benefits and expenses
563.3

559.2

536.0

533.0

2,191.5

556.4

EBIT (4)
$
82.2

$
86.4

$
79.8

$
121.2

$
369.6

$
77.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health underwriting margins (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Medicare supplement:
 
 
 
 
 
 
   Earned premium
$
193.2

$
192.6

$
192.7

$
191.8

$
770.3

$
192.7

   Benefit ratio
67.4
%
68.7
%
71.5
%
70.8
%
69.6
%
71.1
%
Underwriting margin (earned premium less policy benefits)
$
63.1

$
60.2

$
54.8

$
56.1

$
234.2

$
55.7

 
 
 
 
 
 
 
Long-term care:
 
 
 
 
 
 
   Earned premium
$
122.6

$
120.5

$
119.0

$
118.6

$
480.7

$
118.5

Benefit ratio before interest income on reserves
137.8
%
140.7
%
141.1
%
137.1
%
139.2
%
132.9
%
   Interest-adjusted benefit ratio
83.0
%
84.6
%
83.8
%
79.6
%
82.8
%
75.3
%
Underwriting margin (earned premium plus interest income on reserves less policy benefits)
$
20.8

$
18.6

$
19.3

$
24.2

$
82.9

$
29.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 8




CNO Financial Group, Inc.
 
 
 
 
 
 
Bankers Life
 
 
 
 
 
 
Average liabilities for insurance products (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Fixed index annuities
$
3,952.1

$
4,023.6

$
4,112.5

$
4,213.5

$
4,075.5

$
4,327.5

Fixed interest annuities
3,623.5

3,523.9

3,436.8

3,367.1

3,487.8

3,297.5

SPIAs and supplemental contracts:
 
 
 
 
 
 
Mortality based
194.4

190.8

187.9

185.0

189.5

181.4

Deposit based
152.3

153.7

153.9

155.2

153.8

155.3

Health:
 
 
 
 
 
 
Long-term care
5,067.8

4,955.0

4,823.4

4,818.8

4,916.2

4,814.2

Medicare supplement
336.9

327.6

325.1

334.3

331.0

339.3

Other health
47.7

46.9

47.7

48.5

47.7

48.7

Life:
 
 
 
 
 
 
   Interest sensitive
614.9

635.3

652.3

669.3

643.0

689.2

   Non-interest sensitive
911.6

931.1

952.3

971.0

941.5

989.7

Total average liabilities for insurance products, net of reinsurance ceded
$
14,901.2

$
14,787.9

$
14,691.9

$
14,762.7

$
14,786.0

$
14,842.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annuities - account value rollforwards (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Fixed index annuities
 
 
 
 
 
 
Balance as of the beginning of the period
$
3,772.5

$
3,861.3

$
3,969.2

$
4,099.5

$
3,772.5

$
4,220.2

Gross deposits
150.3

166.5

192.2

197.8

706.8

199.9

Withdrawals
(92.0
)
(85.5
)
(81.7
)
(91.0
)
(350.2
)
(97.4
)
Returns reinvested
30.5

26.9

19.8

13.9

91.1

2.8

Balance as of the end of the period
$
3,861.3

$
3,969.2

$
4,099.5

$
4,220.2

$
4,220.2

$
4,325.5

 
 
 
 
 
 
 
Fixed interest annuities
 
 
 
 
 
 
Balance as of the beginning of the period
$
3,670.8

$
3,574.1

$
3,471.5

$
3,399.8

$
3,670.8

$
3,331.9

Gross deposits
20.1

18.9

21.5

26.5

87.0

30.7

Withdrawals
(140.2
)
(144.5
)
(116.0
)
(116.6
)
(517.3
)
(123.2
)
Returns reinvested
23.4

23.0

22.8

22.2

91.4

21.2

Balance as of the end of the period
$
3,574.1

$
3,471.5

$
3,399.8

$
3,331.9

$
3,331.9

$
3,260.6

 
 
 
 
 
 
 
Total annuities
 
 
 
 
 
 
Balance as of the beginning of the period
$
7,443.3

$
7,435.4

$
7,440.7

$
7,499.3

$
7,443.3

$
7,552.1

Gross deposits
170.4

185.4

213.7

224.3

793.8

230.6

Withdrawals
(232.2
)
(230.0
)
(197.7
)
(207.6
)
(867.5
)
(220.6
)
Returns reinvested
53.9

49.9

42.6

36.1

182.5

24.0

Balance as of the end of the period
$
7,435.4

$
7,440.7

$
7,499.3

$
7,552.1

$
7,552.1

$
7,586.1

 
 
 
 
 
 
 


Page 9




CNO Financial Group, Inc.
 
 
 
 
 
 
Bankers Life
 
 
 
 
 
 
Present value of future profits (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Balance, beginning of period
$
128.4

$
122.0

$
118.6

$
114.8

$
128.4

$
114.9

Amortization related to operations
(10.5
)
(10.1
)
(8.3
)
(9.7
)
(38.6
)
(9.9
)
Amortization related to net realized investment (gains) losses
—

—

—

—

—

—

Amounts related to changes in unrealized investment gains (losses) on fixed maturities, available for sale
4.1

6.7

4.5

9.8

25.1

1.2

Balance, end of period
$
122.0

$
118.6

$
114.8

$
114.9

$
114.9

$
106.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Balance, beginning of period
$
456.6

$
445.1

$
536.3

$
557.7

$
456.6

$
718.2

Deferred acquisition expenses
39.4

41.2

41.8

45.6

168.0

40.3

Amortization related to operations
(41.1
)
(37.6
)
(35.8
)
(34.0
)
(148.5
)
(41.6
)
Amortization related to net realized investment (gains) losses
0.2

(0.2
)
0.6

(0.1
)
0.5

0.1

Amortization related to fair value changes in embedded derivative liabilities
3.6

(7.4
)
4.5

(3.9
)
(3.2
)
7.6

Amounts related to changes in unrealized investment gains (losses) on fixed maturities, available for sale
(13.6
)
95.2

10.3

152.9

244.8

(142.2
)
Balance, end of period
$
445.1

$
536.3

$
557.7

$
718.2

$
718.2

$
582.4

 
 
 
 
 
 
 


Page 10




Bankers Life Segment EBIT
 
 
 
 
 
 
Summarized by In-Force and New Business (6)
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
CNO Financial Group, Inc.
 
 
 
 
 
 
EBIT from In-Force Business
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
357.9

$
356.4

$
358.0

$
357.5

$
1,429.8

$
361.4

Net investment income
219.3

220.0

191.4

231.9

862.6

210.1

Fee revenue and other income
5.1

5.3

5.7

6.4

22.5

5.4

Total revenues
582.3

581.7

555.1

595.8

2,314.9

576.9

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits
365.9

372.0

349.4

351.2

1,438.5

362.0

Interest expense
2.1

2.1

2.2

2.4

8.8

2.9

Amortization
47.5

41.9

39.5

38.1

167.0

46.8

Other operating costs and expenses
44.5

44.2

50.5

47.7

186.9

46.8

Total benefits and expenses
460.0

460.2

441.6

439.4

1,801.2

458.5

EBIT from In-Force Business
$
122.3

$
121.5

$
113.5

$
156.4

$
513.7

$
118.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
54.8

$
57.5

$
54.5

$
52.1

$
218.9

$
51.8

Net investment income
7.2

5.2

4.9

4.8

22.1

4.1

Fee revenue and other income
1.2

1.2

1.3

1.5

5.2

1.2

Total revenues
63.2

63.9

60.7

58.4

246.2

57.1

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits
39.4

38.7

36.7

35.1

149.9

35.0

Interest expense
—

—

—

—

—

—

Amortization
4.1

5.8

4.6

5.6

20.1

4.7

Other operating costs and expenses
59.8

54.5

53.1

52.9

220.3

58.2

Total benefits and expenses
103.3

99.0

94.4

93.6

390.3

97.9

EBIT from New Business
$
(40.1
)
$
(35.1
)
$
(33.7
)
$
(35.2
)
$
(144.1
)
$
(40.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
412.7

$
413.9

$
412.5

$
409.6

$
1,648.7

$
413.2

Net investment income
226.5

225.2

196.3

236.7

884.7

214.2

Fee revenue and other income
6.3

6.5

7.0

7.9

27.7

6.6

Total revenues
645.5

645.6

615.8

654.2

2,561.1

634.0

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits
405.3

410.7

386.1

386.3

1,588.4

397.0

Interest expense
2.1

2.1

2.2

2.4

8.8

2.9

Amortization
51.6

47.7

44.1

43.7

187.1

51.5

Other operating costs and expenses
104.3

98.7

103.6

100.6

407.2

105.0

Total benefits and expenses
563.3

559.2

536.0

533.0

2,191.5

556.4

EBIT from In-Force and New Business
$
82.2

$
86.4

$
79.8

$
121.2

$
369.6

$
77.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 


Page 11




CNO Financial Group, Inc.
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
Analysis of income before taxes (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Insurance policy income
$
159.5

$
159.6

$
162.1

$
162.6

$
643.8

$
162.1

Net investment income (loss):
 
 
 
 
 
 
   General account invested assets
64.6

63.3

63.7

64.4

256.0

61.7

Fixed index products
0.6

(0.2
)
(3.2
)
0.6

(2.2
)
(1.2
)
Trading account income related to policyholder accounts
0.4

—

(2.1
)
1.5

(0.2
)
0.1

Fee revenue and other income
0.4

0.3

0.3

0.3

1.3

0.3

   Total revenues
225.5

223.0

220.8

229.4

898.7

223.0

 
 
 
 
 
 
 
Insurance policy benefits
129.0

138.9

130.2

130.3

528.4

129.1

Amounts added to policyholder account balances:
 
 
 
 
 
 
Cost of interest credited to policyholders
3.7

3.7

3.6

3.6

14.6

3.5

Cost of options to fund index credits, net of forfeitures
1.5

1.5

1.5

1.8

6.3

1.7

Market value changes credited to policyholders
1.0

(0.3
)
(5.5
)
2.1

(2.7
)
(0.8
)
Amortization related to operations
15.3

13.7

13.5

12.7

55.2

15.1

Interest expense on investment borrowings
0.4

0.5

0.5

0.6

2.0

0.8

Other operating costs and expenses
46.1

44.9

46.4

46.0

183.4

47.3

   Total benefits and expenses
197.0

202.9

190.2

197.1

787.2

196.7

EBIT (4)
$
28.5

$
20.1

$
30.6

$
32.3

$
111.5

$
26.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Health underwriting margins (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Medicare supplement:
 
 
 
 
 
 
Earned premium
$
19.4

$
18.3

$
18.5

$
17.4

$
73.6

$
16.3

Benefit ratio
63.2
%
64.6
%
68.7
%
63.8
%
65.0
%
65.1
%
Underwriting margin (earned premium less policy benefits)
$
7.1

$
6.5

$
5.8

$
6.3

$
25.7

$
5.7

 
 
 
 
 
 
 
Supplemental health and other:
 
 
 
 
 
 
Earned premium
$
132.8

$
134.4

$
136.6

$
138.0

$
541.8

$
139.2

Benefit ratio before interest income on reserves
82.4
%
90.3
%
81.7
%
81.8
%
84.0
%
81.2
%
Interest-adjusted benefit ratio
57.6
%
65.7
%
57.4
%
57.5
%
59.6
%
57.7
%
Underwriting margin (earned premium plus interest income on reserves less policy benefits)
$
56.2

$
46.1

$
58.2

$
58.6

$
219.1

$
58.9

 
 
 
 
 
 
 



Page 12



CNO Financial Group, Inc.
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
Average liabilities for insurance products (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Fixed index annuities
$
401.0

$
391.9

$
380.8

$
370.5

$
386.0

$
363.5

Fixed interest annuities
124.9

121.4

116.6

113.4

119.1

111.2

SPIAs and supplemental contracts:
 
 
 
 
 
 
Mortality based
267.5

261.7

254.3

250.2

258.4

248.5

Deposit based
257.3

259.9

261.4

263.6

260.5

265.5

Separate Accounts
5.5

5.4

5.2

4.8

5.2

4.7

Health:
 
 
 
 
 
 
Supplemental health
2,455.3

2,478.6

2,508.2

2,533.8

2,494.0

2,558.0

Medicare supplement
33.5

30.9

29.6

30.1

30.9

29.5

Other health
15.1

14.9

14.9

14.5

15.0

14.3

Life:
 
 
 
 
 
 
Interest sensitive
153.5

152.2

151.2

150.6

151.9

150.5

Non-interest sensitive
188.4

186.5

184.9

183.8

185.9

182.3

Total average liabilities for insurance products, net of reinsurance ceded
$
3,902.0

$
3,903.4

$
3,907.1

$
3,915.3

$
3,906.9

$
3,928.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Present value of future profits (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Balance, beginning of period
$
314.2

$
304.9

$
301.9

$
296.0

$
314.2

$
290.2

Amortization related to operations
(7.0
)
(6.6
)
(5.9
)
(6.1
)
(25.6
)
(6.5
)
Amounts related to changes in unrealized investment gains (losses) on fixed maturities, available for sale
(2.3
)
3.6

—

0.3

1.6

(0.3
)
Balance, end of period
$
304.9

$
301.9

$
296.0

$
290.2

$
290.2

$
283.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Balance, beginning of period
$
240.2

$
245.4

$
260.8

$
268.6

$
240.2

$
280.0

Deferred acquisition expenses
13.7

15.2

14.7

14.0

57.6

14.3

Amortization related to operations
(8.3
)
(7.1
)
(7.6
)
(6.6
)
(29.6
)
(8.6
)
Amortization related to net realized investment (gains) losses
—

(0.1
)
—

0.1

—

(0.2
)
Amortization related to fair value changes in embedded derivative liabilities
0.6

(0.9
)
0.3

(0.6
)
(0.6
)
0.9

Amounts related to changes in unrealized investment gains (losses) on fixed maturities, available for sale
(0.8
)
8.3

0.4

4.5

12.4

(4.1
)
Balance, end of period
$
245.4

$
260.8

$
268.6

$
280.0

$
280.0

$
282.3

 
 
 
 
 
 
 



Page 13



Washington National Segment EBIT Summarized by In-Force and New Business (6)
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
CNO Financial Group, Inc.
 
 
 
 
 
 
EBIT from In-Force Business
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
140.0

$
139.7

$
142.1

$
142.7

$
564.5

$
142.5

Net investment income
65.6

63.1

58.4

66.5

253.6

60.6

Fee revenue and other income
0.4

0.3

0.3

0.3

1.3

0.3

Total revenues
206.0

203.1

200.8

209.5

819.4

203.4

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits (7)
123.9

132.4

118.3

126.3

500.9

122.4

Interest expense
0.4

0.5

0.5

0.6

2.0

0.8

Amortization
14.1

12.4

12.2

11.4

50.1

13.7

Other operating costs and expenses
32.7

33.1

34.0

33.6

133.4

35.2

Total benefits and expenses
171.1

178.4

165.0

171.9

686.4

172.1

EBIT from In-Force Business
$
34.9

$
24.7

$
35.8

$
37.6

$
133.0

$
31.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
19.5

$
19.9

$
20.0

$
19.9

$
79.3

$
19.6

Net investment income
—

—

—

—

—

—

Fee revenue and other income
—

—

—

—

—

—

Total revenues
19.5

19.9

20.0

19.9

79.3

19.6

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits (7)
11.3

11.4

11.5

11.5

45.7

11.1

Interest expense
—

—

—

—

—

—

Amortization
1.2

1.3

1.3

1.3

5.1

1.4

Other operating costs and expenses
13.4

11.8

12.4

12.4

50.0

12.1

Total benefits and expenses
25.9

24.5

25.2

25.2

100.8

24.6

EBIT from New Business
$
(6.4
)
$
(4.6
)
$
(5.2
)
$
(5.3
)
$
(21.5
)
$
(5.0
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
159.5

$
159.6

$
162.1

$
162.6

$
643.8

$
162.1

Net investment income
65.6

63.1

58.4

66.5

253.6

60.6

Fee revenue and other income
0.4

0.3

0.3

0.3

1.3

0.3

Total revenues
225.5

223.0

220.8

229.4

898.7

223.0

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits
135.2

143.8

129.8

137.8

546.6

133.5

Interest expense
0.4

0.5

0.5

0.6

2.0

0.8

Amortization
15.3

13.7

13.5

12.7

55.2

15.1

Other operating costs and expenses
46.1

44.9

46.4

46.0

183.4

47.3

Total benefits and expenses
197.0

202.9

190.2

197.1

787.2

196.7

EBIT from In-Force and New Business
$
28.5

$
20.1

$
30.6

$
32.3

$
111.5

$
26.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 14



CNO Financial Group, Inc.
 
 
 
 
 
 
Colonial Penn
 
 
 
 
 
 
Analysis of income (loss) before taxes (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Insurance policy income
$
64.3

$
66.6

$
66.0

$
66.6

$
263.5

$
69.1

Net investment income on general account invested assets
10.7

10.8

10.5

11.0

43.0

11.0

Fee revenue and other income
0.3

0.2

0.2

0.3

1.0

0.4

   Total revenues
75.3

77.6

76.7

77.9

307.5

80.5

 
 
 
 
 
 
 
Insurance policy benefits
48.3

47.8

45.5

46.7

188.3

50.4

Amounts added to annuity and interest-sensitive life product account balances
0.3

—

0.2

0.2

0.7

0.1

Amortization related to operations
3.6

3.7

3.6

3.5

14.4

3.9

Interest expense on investment borrowings
—

—

—

0.1

0.1

0.1

Other operating costs and expenses
29.0

21.9

26.8

20.7

98.4

32.8

   Total benefits and expenses
81.2

73.4

76.1

71.2

301.9

87.3

EBIT (4)
$
(5.9
)
$
4.2

$
0.6

$
6.7

$
5.6

$
(6.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average liabilities for insurance products (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
SPIAs - mortality based
$
76.2

$
74.1

$
71.7

$
70.7

$
73.1

$
71.2

Health:
 
 
 
 
 
 
Medicare supplement
8.5

8.0

7.2

7.0

7.7

6.8

Other health
4.5

4.5

4.4

4.4

4.4

4.3

Life:
 
 
 
 
 
 
   Interest sensitive
16.6

16.5

16.4

16.3

16.5

16.2

   Non-interest sensitive
661.5

667.5

673.5

677.9

670.1

680.6

Total average liabilities for insurance products, net of reinsurance ceded
$
767.3

$
770.6

$
773.2

$
776.3

$
771.8

$
779.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Present value of future profits (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Balance, beginning of period
$
46.8

$
45.5

$
44.6

$
43.6

$
46.8

$
43.9

   Amortization related to operations
(1.4
)
(1.4
)
(1.2
)
(0.9
)
(4.9
)
(1.3
)
Amounts related to changes in unrealized investment gains (losses) on fixed maturities, available for sale
0.1

0.5

0.2

1.2

2.0

—

Balance, end of period
$
45.5

$
44.6

$
43.6

$
43.9

$
43.9

$
42.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred acquisition costs (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Balance, beginning of period
$
73.8

$
76.7

$
80.3

$
82.8

$
73.8

$
85.1

Deferred acquisition expenses
5.1

5.9

4.9

4.9

20.8

7.6

Amortization related to operations
(2.2
)
(2.3
)
(2.4
)
(2.6
)
(9.5
)
(2.6
)
Balance, end of period
$
76.7

$
80.3

$
82.8

$
85.1

$
85.1

$
90.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 15



Colonial Penn Segment EBIT
 
 
 
 
 
 
Summarized by In-Force and New Business (6)
 
 
 
 
 
 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
CNO Financial Group, Inc.
 
 
 
 
 
 
EBIT from In-Force Business
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
51.9

$
53.6

$
53.0

$
53.5

$
212.0

$
55.3

Net investment income
10.7

10.8

10.5

11.0

43.0

11.0

Fee revenue and other income
0.3

0.2

0.2

0.3

1.0

0.4

Total revenues
62.9

64.6

63.7

64.8

256.0

66.7

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits
41.5

40.3

38.2

39.4

159.4

42.1

Interest expense
—

—

—

0.1

0.1

0.1

Amortization
3.4

3.5

3.4

3.4

13.7

3.7

Other operating costs and expenses
7.4

7.5

7.2

7.1

29.2

8.1

Total benefits and expenses
52.3

51.3

48.8

50.0

202.4

54.0

EBIT from In-Force Business
$
10.6

$
13.3

$
14.9

$
14.8

$
53.6

$
12.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
12.4

$
13.0

$
13.0

$
13.1

$
51.5

$
13.8

Net investment income
—

—

—

—

—

—

Fee revenue and other income
—

—

—

—

—

—

Total revenues
12.4

13.0

13.0

13.1

51.5

13.8

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits
7.1

7.5

7.5

7.5

29.6

8.4

Interest expense
—

—

—

—

—

—

Amortization
0.2

0.2

0.2

0.1

0.7

0.2

Other operating costs and expenses
21.6

14.4

19.6

13.6

69.2

24.7

Total benefits and expenses
28.9

22.1

27.3

21.2

99.5

33.3

EBIT from New Business
$
(16.5
)
$
(9.1
)
$
(14.3
)
$
(8.1
)
$
(48.0
)
$
(19.5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT from In-Force and New Business
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
Insurance policy income
$
64.3

$
66.6

$
66.0

$
66.6

$
263.5

$
69.1

Net investment income
10.7

10.8

10.5

11.0

43.0

11.0

Fee revenue and other income
0.3

0.2

0.2

0.3

1.0

0.4

Total revenues
75.3

77.6

76.7

77.9

307.5

80.5

 
 
 
 
 
 
 
Benefits and expenses
 
 
 
 
 
 
Insurance policy benefits
48.6

47.8

45.7

46.9

189.0

50.5

Interest expense
—

—

—

0.1

0.1

0.1

Amortization
3.6

3.7

3.6

3.5

14.4

3.9

Other operating costs and expenses
29.0

21.9

26.8

20.7

98.4

32.8

Total benefits and expenses
81.2

73.4

76.1

71.2

301.9

87.3

EBIT from In-Force and New Business
$
(5.9
)
$
4.2

$
0.6

$
6.7

$
5.6

$
(6.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 16



CNO Financial Group, Inc.
 
 
 
 
 
 
Corporate Operations
 
 
 
 
 
 
Analysis of loss before taxes (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Net investment income (loss):
 
 
 
 
 
 
   General investment portfolio
$
1.8

$
1.4

$
1.6

$
2.1

$
6.9

$
1.3

   Other special-purpose portfolios
4.9

1.4

(7.7
)
5.8

4.4

2.7

Fee revenue and other income
1.9

2.2

2.1

2.4

8.6

2.5

Interest expense on investment borrowings
—

(0.1
)
(0.1
)
—

(0.2
)
—

Other operating costs and expenses
(9.9
)
(9.9
)
(7.8
)
(11.0
)
(38.6
)
(14.6
)
Corporate operations, excluding corporate interest expense
(1.3
)
(5.0
)
(11.9
)
(0.7
)
(18.9
)
(8.1
)
Interest expense on corporate debt
(10.5
)
(11.9
)
(11.3
)
(11.3
)
(45.0
)
(11.4
)
Operating loss before taxes
$
(11.8
)
$
(16.9
)
$
(23.2
)
$
(12.0
)
$
(63.9
)
$
(19.5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
















Page 17



CNO Financial Group, Inc.
 
 
 
 
 
 
Bankers Life
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Annuities
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed index (first-year)
$
150.2

$
166.4

$
192.2

$
197.8

$
706.6

$
199.9

 
 
 
 
 
 
 
Other fixed interest (first-year)
20.0

18.6

23.0

28.0

89.6

31.9

Other fixed interest (renewal)
1.5

2.1

1.3

1.9

6.8

1.8

  Subtotal - other fixed interest annuities
21.5

20.7

24.3

29.9

96.4

33.7

 
 
 
 
 
 
 
      Total annuities
171.7

187.1

216.5

227.7

803.0

233.6

 
 
 
 
 
 
 
Health
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare supplement (first-year)
19.4

20.0

20.3

20.6

80.3

18.4

Medicare supplement (renewal)
160.9

156.3

169.9

172.0

659.1

168.5

  Subtotal - Medicare supplement
180.3

176.3

190.2

192.6

739.4

186.9

 
 
 
 
 
 
 
Long-term care (first-year)
4.0

4.0

4.4

4.3

16.7

4.4

Long-term care (renewal)
114.1

115.6

117.6

112.6

459.9

115.2

  Subtotal - long-term care
118.1

119.6

122.0

116.9

476.6

119.6

 
 
 
 
 
 
 
Supplemental health (first-year)
1.5

1.6

1.6

1.4

6.1

1.3

Supplemental health (renewal)
2.9

3.2

3.5

3.5

13.1

3.7

  Subtotal - supplemental health
4.4

4.8

5.1

4.9

19.2

5.0

 
 
 
 
 
 
 
Other health (first-year)
—

0.1

—

—

0.1

—

Other health (renewal)
1.8

1.7

1.8

1.7

7.0

1.6

  Subtotal - other health
1.8

1.8

1.8

1.7

7.1

1.6

 
 
 
 
 
 
 
    Total health
304.6

302.5

319.1

316.1

1,242.3

313.1

 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
Traditional (first-year)
20.5

22.1

21.7

18.7

83.0

20.8

Traditional (renewal)
46.1

48.0

50.3

49.5

193.9

50.2

  Subtotal - traditional
66.6

70.1

72.0

68.2

276.9

71.0

 
 
 
 
 
 
 
Interest-sensitive (first-year)
21.9

22.7

18.9

19.8

83.3

17.8

Interest-sensitive (renewal)
19.4

21.5

22.2

22.7

85.8

25.2

  Subtotal - interest-sensitive
41.3

44.2

41.1

42.5

169.1

43.0

 
 
 
 
 
 
 
    Total life insurance
107.9

114.3

113.1

110.7

446.0

114.0

 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
237.5

255.5

282.1

290.6

1,065.7

294.5

Total renewal premium collections on insurance products
346.7

348.4

366.6

363.9

1,425.6

366.2

 
 
 
 
 
 
 
    Total collections on insurance products
$
584.2

$
603.9

$
648.7

$
654.5

$
2,491.3

$
660.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 18



CNO Financial Group, Inc.
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Health
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare supplement (renewal)
$
18.2

$
17.1

$
19.4

$
17.9

$
72.6

$
16.4

 
 
 
 
 
 
 
Supplemental health (first-year)
18.2

19.1

19.1

18.5

74.9

18.5

Supplemental health (renewal)
114.5

117.0

119.5

118.9

469.9

122.6

  Subtotal - supplemental health
132.7

136.1

138.6

137.4

544.8

141.1

 
 
 
 
 
 
 
Other health (first-year)
—

0.1

—

0.1

0.2

—

Other health (renewal)
0.5

0.5

0.4

0.6

2.0

0.5

  Subtotal - other health
0.5

0.6

0.4

0.7

2.2

0.5

 
 
 
 
 
 
 
    Total health
151.4

153.8

158.4

156.0

619.6

158.0

 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
Traditional (first-year)
0.1

0.3

0.1

0.2

0.7

0.2

Traditional (renewal)
3.0

2.7

3.0

2.7

11.4

2.6

  Subtotal - traditional
3.1

3.0

3.1

2.9

12.1

2.8

 
 
 
 
 
 
 
Interest-sensitive (first-year)
0.9

1.2

1.0

1.2

4.3

1.4

Interest-sensitive (renewal)
2.9

2.8

2.6

3.0

11.3

3.0

  Subtotal - interest-sensitive
3.8

4.0

3.6

4.2

15.6

4.4

 
 
 
 
 
 
 
    Total life insurance
6.9

7.0

6.7

7.1

27.7

7.2

 
 
 
 
 
 
 
Annuities
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed index (first-year)
—

0.1

—

—

0.1

—

Fixed index (renewal)
0.3

0.8

0.2

0.5

1.8

0.2

  Subtotal - fixed index annuities
0.3

0.9

0.2

0.5

1.9

0.2

 
 
 
 
 
 
 
Other fixed interest (renewal)
0.1

0.2

0.2

—

0.5

0.1

 
 
 
 
 
 
 
      Total annuities
0.4

1.1

0.4

0.5

2.4

0.3

 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
19.2

20.8

20.2

20.0

80.2

20.1

Total renewal premium collections on insurance products
139.5

141.1

145.3

143.6

569.5

145.4

 
 
 
 
 
 
 
    Total collections on insurance products
$
158.7

$
161.9

$
165.5

$
163.6

$
649.7

$
165.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 



Page 19



CNO Financial Group, Inc.
 
 
 
 
 
 
Colonial Penn
 
 
 
 
 
 
Premiums collected on insurance products (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Life insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
Traditional (first-year)
$
12.6

$
12.8

$
13.2

$
12.9

$
51.5

$
14.0

Traditional (renewal)
51.7

51.4

52.8

52.3

208.2

55.4

  Subtotal - traditional
64.3

64.2

66.0

65.2

259.7

69.4

 
 
 
 
 
 
 
Interest-sensitive (all renewal)
0.1

0.1

—

—

0.2

0.1

 
 
 
 
 
 
 
    Total life insurance
64.4

64.3

66.0

65.2

259.9

69.5

 
 
 
 
 
 
 
Health (all renewal)
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare supplement
0.7

0.7

0.6

0.7

2.7

0.5

 
 
 
 
 
 
 
Other health
—

0.1

0.1

0.1

0.3

0.1

 
 
 
 
 
 
 
    Total health
0.7

0.8

0.7

0.8

3.0

0.6

 
 
 
 
 
 
 
Collections on insurance products
 
 
 
 
 
 
 
 
 
 
 
 
 
Total first-year premium collections on insurance products
12.6

12.8

13.2

12.9

51.5

14.0

Total renewal premium collections on insurance products
52.5

52.3

53.5

53.1

211.4

56.1

 
 
 
 
 
 
 
    Total collections on insurance products
$
65.1

$
65.1

$
66.7

$
66.0

$
262.9

$
70.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 






Page 20






CNO Financial Group, Inc.
 
 
 
 
 
 
New Annualized Premiums ("NAP") (in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bankers Life
1Q15
2Q15
3Q15
4Q15
2015
1Q16
 
 
 
 
 
 
 
Medicare supplement
$
17.7

$
16.3

$
16.8

$
27.6

$
78.4

$
16.4

Long-term care
5.3

5.6

6.0

6.7

23.6

6.1

Supplemental health
2.0

1.9

1.4

1.6

6.9

1.5

Life
26.4

26.4

22.8

19.6

95.2

22.4

Annuity
10.2

11.1

12.9

13.6

47.8

13.9

   Subtotal Bankers Life
61.6

61.3

59.9

69.1

251.9

60.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Washington National
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental health
21.4

23.9

23.8

24.1

93.2

22.0

Life
1.2

1.8

2.0

2.2

7.2

1.4

   Subtotal Washington National
22.6

25.7

25.8

26.3

100.4

23.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Colonial Penn
 
 
 
 
 
 
 
 
 
 
 
 
 
Life
21.1

18.5

18.9

15.6

74.1

24.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total NAP
$
105.3

$
105.5

$
104.6

$
111.0

$
426.4

$
107.8

 
 
 
 
 
 
 

CNO Financial Group, Inc.
 
 
 
 
 
Total Policies In-force
 
 
 
 
 
 
 
 
 
 
 
 
1Q15
2Q15
3Q15
4Q15
1Q16
Policies in-force:
 
 
 
 
 
Bankers Life
1,521,456

1,528,943

1,532,396

1,531,145

1,531,842

Washington National
953,224

954,310

955,066

955,137

958,833

Colonial Penn
835,555

839,377

842,035

839,317

851,138

Total policies in-force
3,310,235

3,322,630

3,329,497

3,325,599

3,341,813

Third party policies in-force sold by
 
 
 
 
 
Bankers Life agents
134,829

136,604

138,479

151,903

147,838

Total policies in-force and third party policies
 
 
 
 
 
in-force sold by Bankers Life agents
3,445,064

3,459,234

3,467,976

3,477,502

3,489,651

 
 
 
 
 
 
 
 
 
 
 
 
    

Page 21



CNO Financial Group, Inc.
 
 
 
 
 
 
Statutory information - consolidated basis (8) (in millions)
1Q15
2Q15
3Q15
4Q15
2015
1Q16 (a)
 
 
 
 
 
 
 
Net gain from operations before interest expense and federal income taxes
$
91.8

$
104.5

$
74.3

$
124.5

$
395.1

$
91.4

Interest expense on surplus debentures held by parent company
12.0

12.2

24.1

12.3

60.6

12.1

 
 
 
 
 
 
 
Net gain from operations before federal income taxes
79.8

92.3

50.2

112.2

334.5

79.3

Federal income tax expense (benefit)
1.0

1.3

(6.4
)
(12.0
)
(16.1
)
(0.6
)
 
 
 
 
 
 
 
Net gain from operations before net realized capital gains (losses)
78.8

91.0

56.6

124.2

350.6

79.9

Net realized capital gains (losses)
(5.9
)
(1.0
)
(14.0
)
2.9

(18.0
)
(10.5
)
 
 
 
 
 
 
 
Net income
$
72.9

$
90.0

$
42.6

$
127.1

$
332.6

$
69.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital and surplus
$
1,651.5

$
1,702.9

$
1,684.7

$
1,739.2

$
1,739.2

$
1,717.4

Asset valuation reserve (AVR)
219.1

219.8

204.2

196.9

196.9

201.7

 
 
 
 
 
 
 
  Capital, surplus and AVR
1,870.6

1,922.7

1,888.9

1,936.1

1,936.1

1,919.1

 
 
 
 
 
 
 
Interest maintenance reserve (IMR)
495.2

489.8

480.8

476.0

476.0

491.6

 
 
 
 
 
 
 
  Total statutory capital, surplus, AVR & IMR
$
2,365.8

$
2,412.5

$
2,369.7

$
2,412.1

$
2,412.1

$
2,410.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 



(a)  Such amounts are preliminary as the statutory basis financial statements of our insurance subsidiaries for 1Q16 will
be filed with the respective insurance regulators on or about May 13, 2016.














Page 22



Notes

(1) Excludes accumulated other comprehensive income.

(2) Shareholders' equity divided by common shares outstanding.

(3) Book value per diluted share reflects the potential dilution that could occur if outstanding stock options were exercised and restricted stock and performance units were vested. The dilution from options, restricted shares and performance units is calculated using the treasury stock method. Under this method, we assume the proceeds from the exercise of the options (or the unrecognized compensation expense with respect to restricted stock and performance units) will be used to purchase shares of our common stock at the closing market price on the last day of the period.

(4) Management believes that an analysis of earnings before net realized investment gains (losses), fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, fair value changes related to the agent deferred compensation plan, loss on extinguishment of debt, other non-operating items, corporate interest expense and taxes (“EBIT,” a non-GAAP financial measure) provides a clearer comparison of the operating results of the company quarter-over-quarter because these items are unrelated to the company's underlying fundamentals.

(5) Management believes that an analysis of Net income applicable to common stock before: (i) net realized investment gains or losses, net of related amortization and taxes; (ii) fair value changes due to fluctuations in the interest rates used to discount embedded derivative liabilities related to our fixed index annuities, net of related amortization and taxes; (iii) fair value changes related to the agent deferred compensation plan, net of taxes; (iv) loss on extinguishment of debt, net of taxes; (v) changes in the valuation allowance for deferred tax assets; and (vi) other non-operating items consisting primarily of equity in earnings of certain non-strategic investments and earnings attributable to variable interest entities, net of taxes (“Net operating income,” a non-GAAP financial measure) is important to evaluate the financial performance of the company, and is a key measure commonly used in the life insurance industry. Management uses this measure to evaluate performance because the items excluded from net operating income can be affected by events that are unrelated to the company's underlying fundamentals.

(6) Management believes that an analysis of EBIT, separated between in-force and new business provides increased clarity around the value drivers of our business, particularly since the new business results are significantly impacted by the rate of sales, mix of business and the distribution channel through which new sales are made. EBIT from new business includes pre-tax revenues and expenses associated with new sales of our insurance products during the first year after the sale is completed. EBIT from in-force business includes all pre-tax revenues and expenses associated with sales of insurance products that were completed more than one year before the end of the reporting period. The allocation of certain revenues and expenses between new and in-force business is based on estimates, which we believe are reasonable.

(7)
Adjustments between insurance policy benefits allocated to new and in-force business in the Washington National segment were made to 2015 reported amounts to conform to our current method. This change had no impact on total insurance policy benefits.

(8)
Based on statutory accounting practices prescribed or permitted by regulatory authorities for CNO Financial's insurance subsidiaries after appropriate elimination of intercompany accounts among such subsidiaries. Such accounting practices differ from GAAP.



Page 23

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